Hungary's government has sharply revised down its GDP growth forecast for 2025, lowering expectations from 2.5% to just 1%, while simultaneously adjusting the inflation outlook upward to 4.7% from a previous 4.5%, Economy Minister Marton Nagy announced at a press briefing on July 29 a day ahead of the release of Q2 GDP data by statistics agency KSH. Although the new GDP forecast remains slightly above the broader market consensus, the revision itself sends a positive message to the market, financial website Portfolio.hu observed.

The financial portal recalls that that the 2025 budget in November was approved with a 3.4% target, revised down to 2.5% in March.

Analysts surveyed Portfolio.hu expect flat GDP growth in Q2 after a 0.2% contraction in the first quarter and only marginal year-on-year expansion. According to economists, weak industrial output and a struggling agricultural sector had dragged down growth, partly offset by improvements in construction and services.

Analysts in January projected 2.6% growth for 2025, but the latest consensus now stands around just 0.7% with forecasts ranging from 0.5% growth to 1%. According to Erste Bank analysts, if upcoming data fall short of even these modest expectations, projections could be revised down further. Industrial output continues to suffer amid weak external demand, high global inventories and poor order books.

Hungary's economy, long reliant on its robust automotive and manufacturing sectors, has faced multiple headwinds in recent years. The global semiconductor shortage disrupted car production, while the transition to electric vehicles (EVs) has posed structural challenges. The energy crisis unmasked major competitiveness issues, while consumers cut back spending after the inflation peak.

Economic uncertainty, ad-hoc government measures, and the lack of demand, led to a massive decline in investment, while the fiscal position is also pressured by rising debt service costs and social commitments. Agriculture, despite its small weight, is on track for a miserable year due to the drought, while services and consumption could provide some silver lining.

Hungary's manufacturing sector continues to face significant challenges, weighed down by weak external demand, high global inventories and fragile order books, according to Peter Virovacz, senior analyst at ING Bank. Export capacity remains under pressure amid a softening labour market and delayed tariff impacts. Gabor Regos from Granit Alapkezelo also pointed to withheld EU funds and persistent inflationary pressures as factors constraining fiscal flexibility and investment.

At the Tuesday briefing, the National Economy Minister has pushed back expectations for a recovery to the latter half of 2025, projecting a rebound to 4% GDP growth only in the second quarter of 2026. While domestic consumption is expected to be the key growth driver, cushioning the economy from further deterioration, overall economic output faces notable downside risks.

Despite the weaker growth outlook, Nagy assured that tax revenues are holding steady, even exceeding previous year levels, suggesting that the deficit targets could be met without further measures. Similarly, there will be no need to make adjustments to the 2026 budget, approved by Parliament last month, given the higher fiscal reserves, the minister argued.

On inflation, Minister Nagy forecast headline figures to ease to around 4% in July from 4.6% in June, yet the full-year average is now expected at 4.7%, up 25 basis points from the current forecast. Without government-imposed price caps on key energy products, inflation in June would have surged to 6.1%. Though these caps have been burdensome for retailers, the government has not confirmed whether they will be lifted after August.

With inflation forecast raised, pensioners are expected to receive a 1.5% increase in supplementary pension, or HUF42,600 (€106) per person. Combined with vouchers for the elderly, this will leave a HUF200bn gap in the budget.

To stimulate economic activity, the government intends to launch a new housing support programme targeted at state employees from September, alongside expanding the Demjan Sandor economic development scheme aimed at SMEs. Further tax relief measures are also under preparation, with details expected in September.

Analysts expect a string of other populist measures announced by the government ahead of the 2026 elections.